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TMI Blog2015 (12) TMI 1424X X X X Extracts X X X X X X X X Extracts X X X X ..... the Securitization Application filed by the Petitioner and ordered the return of the Securitization Application to the Petitioner so that the same could be filed in the competent DRT. In a nutshell, both the authorities below held that DRT - III, Mumbai would have no jurisdiction to entertain the Securitisation Application as the secured property was situated in the State of Gujarat and therefore the Securitization Application could be filed only within the jurisdiction of the DRT where the secured property was situated. To come to this conclusion, the DRT as well as the DRAT have both relied upon a decision of the Full Bench of the Delhi High Court in the case of Amish Jain and another v/s ICICI Bank Ltd. 2013 (1) D.R.T.C. 70 (Delhi) 3. The brief facts to decide the present controversy are really undisputed. In the present case, the Petitioner is a company incorporated under the provisions of the Companies Act, 1956 and was the Applicant in Securitization Application No.136 of 2012 before the DRT - III, Mumbai. Respondent No.1 is ARCIL which is an asset reconstruction and securitization company and registered with the Reserve Bank of India under the provisions of the Securitisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed auction sale. Thereafter correspondence was exchanged between the Petitioner and Respondent No.1 wherein the Petitioner inter alia brought to the notice of Respondent No.1 that they should disclose all the liabilities attached to the secured property so that the prospective purchaser would not be misguided and also the fact that the due procedure of law had not been followed whilst conducting the auction sale and the same was not transparent. We are not referring to this correspondence in detail as the same it not really germane to decide the present controversy. 7. Be that as it may, to challenge the aforesaid sale notice dated 19th April 2011, the Petitioner approached DRT - III, Mumbai by filing Securitisation Application No.136 of 2011 and inter alia sought a declaration that the sale notice dated 19th April, 2011 is illegal and arbitrary and the DRT be pleased to quash and set aside the same. Whilst this Securitisation Application was pending, Respondent No.1, by public auction, sold the secured property and confirmed the sale in favour of Respondent No.3 (who is the nominee of Respondent No.2, the actual bidder in the auction). A Sale Certificate was also issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to be submitted to the office of Respondent No.1 situated in Mumbai. The entire bidding process and opening of the bid was stated to be in Mumbai at the office of Respondent No.1. The deposit of earnest money as well as the balance amount of the bid was to be made in the name of Respondent No.1 payable at Mumbai. Further, Mr Samdani submitted that as per clause 31 of the tender document, disputes if any, were subject to jurisdiction of Mumbai Courts / Tribunals only. According to Mr Samdani, it is not in dispute that the auction purchaser submitted its bid in the office of Respondent No.1 situated in Mumbai, which bid was accepted and confirmed in favour of the auction purchaser by Respondent No.1 in Mumbai. Looking to these facts, Mr Samdani submitted that the entire cause of action had arisen within the jurisdiction of the DRT - III, Mumbai and which was competent to entertain the Securitisation Application filed by the Petitioner. 11. In addition thereto, Mr Samdani submitted that Respondent No.1 and against whom the relief is sought in the Securitisation Application, has not denied or objected to the territorial jurisdiction of the DRT and it is only the auction purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, wholly or in part, arises. Mr Samdani submitted that admittedly the SARFAESI Act does not contain any direct provision which lays down or circumscribes the territorial jurisdiction of the DRT that could entertain a Securitisation Application filed by any aggrieved person (including a borrower). In these circumstances, it was his submission that looking to section 17(7) of the SARFAESI Act and which stipulates that the DRT shall, as far as may be, dispose of the Securitisation Application in accordance with the provisions of the RDDB Act, the provisions of section 19(1) of the RDDB Act are to be applied for determining which DRT would have jurisdiction to entertain the Securitisation Application. In other words, it was his submission that the principles enshrined in section 19(1) of the RDDB Act would determine which DRT would have jurisdiction to entertain and decide a Securitisation Application filed by an aggrieved person (including a borrower). It was therefore his submission that looking to all these factors and there being no dispute about the fact that the cause of action, wholly or in part, had arisen within the jurisdiction of DRT - III, Mumbai, this DRT had territorial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be achieved thereby. Prior to 1990, Banks and Financial Institutions were experiencing considerable difficulties in recovering loans and enforcement of securities charged with them. The then existing procedure for recovery of debts due to these Banks and Financial Institutions had blocked a significant portion of their funds in unproductive assets, the value of which deteriorated with the passage of time. The Government therefore felt that there was an urgent need to work out a suitable mechanism through which the dues of Banks and Financial Institutions could be realised without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by Banks and Financial Institutions and suggested remedial measures including a change in law. This Committee also suggested setting up a special tribunal for recovery of dues of Banks and Financial Institutions by following a summary procedure. On 30th September 1990, more than 15,00,000 cases filed by public sector Banks and about 304 cases filed by Financial Institutions were pending in various Courts. The recovery of debts involved in these cases was approximately R.6,013 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Institutions from the defaulting borrowers. Initially, the Legislature enacted the RDDB Act under which the debts of Banks and Financial Institutions were adjudicated by a special tribunal following a summary procedure. As the Government found that this Legislation was not adequate enough for speedy recovery, in the year 2002, the Legislature enacted the SARFAESI Act giving wide powers to Banks and Financial Institutions to enforce their security without the intervention of the Court but subject to the provisions laid down in the SARFAESI Act. Looking to the purpose for enacting these two legislations and the object sought to be achieved thereby, there can be no doubt that the two Acts complement each other. In fact, a close reading of section 37 of the SARFAESI Act shows that the provisions contained therein or the rules framed thereunder will be in addition to the provisions of the RDDB Act. Section 35 of the SARFAESI Act states that the provisions of the SARFAESI Act will have an over-riding effect notwithstanding anything inconsistent contained in any other law for the time being in force. Therefore, reading sections 35 and 37 together, it would be clear that in the event o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of this Act. Section 13(2) postulates that where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of the secured debt or any installment thereof, and his account in respect of such debt is classified as a nonperforming asset, then, the secured creditor, by notice in writing, may call upon the borrower to discharge in full his liabilities to the secured creditor within 60 days from the date of the notice, failing which the secured creditor would be entitled to exercise all or any of the rights/measures under Section 13(4). Sub-section 3 and 3A of Section 13, inter alia, provide for details and contents of the notice as well as the procedure to be followed before any of the measures under Section 13(4) are initiated by the secured creditor. Thereafter, Section 13(4) inter alia provides that if the borrower fails to discharge his liability in full within the period specified in the Section 13(2) notice, the secured creditor may take recourse to one or more of the following measures mentioned in sub-section (4) of Section 13. Section 13(4) reads as under:- "(4) In case the borrower fails to discharge his liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an Application in the form and manner as may be prescribed, to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of its balance dues from the borrower. 21. Section 14 of the SARFAESI Act, is a provision which entitles the secured creditor to approach the Chief Metropolitan Magistrate or District Magistrate to assist the secured creditor in taking possession of secured asset. For the purposes of taking possession or control of such secured asset, the secured creditor could request in writing, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, within whose jurisdiction any secured asset or other documents thereto may be situated or found and to take possession thereof and hand over the same to the secured creditor. 22. If any person is aggrieved by any of the measures taken by the secured creditor under section 13(4), then such aggrieved person can challenge such measure under Section 17 of the SARFAESI Act. Section 17 of the SARFAESI Act reads as under:- "17. Right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of Section 13 to recover his secured debt. (5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application: Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in subsection (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment of tribunals for expeditious adjudication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith or incidental thereto. Section 2 of the RDDB Act is the definitions clause and defines the words "banks", "banking company", "corresponding new bank", Financial Institutions" etc. The definition of the word "Tribunal" means the tribunal established under sub-section (1) of Section 3 of the RDDB Act. The word "debt" is defined in Section 2(g) and reads as under:- "2. Definitions.-In this Act, unless the context otherwise requires,- (g) "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application;" 27. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business, or personally works for gain; or (c) the cause of action, wholly or in part, arises; Provided that the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act : Provided further that any application made under the first proviso for seeking permission from the Debts Recovery Tribunal to withdraw the application made under sub-section (1) shall be dealt with by it as expeditiously as possible and disposed of within thirty days from the date of such application : Provided also that in case the Debts Recovery Tribunal refuses to grant permission for withdrawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the Bank / Financial Institution under section 19 where (a) the Defendant, or where there are more than one, any of the Defendants, at the time of making the Application, actually and voluntarily reside or carry on business or personally work for gain; or (b) the cause of action, wholly or in part, arises. What is important to note here is that these are the only conditions that are required to be satisfied for the concerned DRT to be invested with territorial jurisdiction to entertain an Application filed by the Bank or Financial Institution for recovery of its dues. There is no condition in section 19(1) that in case the Bank is suing for enforcement of mortgage, the Application has to be filed within the jurisdiction of the DRT where the mortgaged property is situated. In other words, the situs of the mortgaged property is not determinative of the territorial jurisdiction of the DRT. This is a distinct departure from the provisions of section 16 of the CPC and to which we shall advert to shortly. 32. To understand and deal with the argument of Mr Joshi that only that DRT would have jurisdiction to entertain a Securitsation Application within whose local limits the secure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt within the local limits of whose jurisdiction the property is situated. Ordinarily, if a Suit is filed for foreclosure, sale or redemption of a mortgage or charge upon immovable property [section 16(c)], the same would have to be filed where the mortgaged property was situated. In contrast, we do not find any such provision / stipulation in section 19(1) of the RDDB Act. If a Bank/Financial Institution has to recover its dues either by enforcement of its security (immoveable or movable or both) or otherwise, it has to approach the DRT under section 19 of the RDDB Act. In such a case, the jurisdiction of the DRT is determined as per section 19(1) of the RDDB Act. In such a scenario, even though the mortgaged property may be situated outside the jurisdiction of the DRT, the same could be entertained by the DRT provided the jurisdictional requirements as set out in section 19(1) are satisfied. In other words, even though, the mortgaged property maybe situate outside its jurisdiction, the only condition that would be required to be satisfied to invest the DRT with territorial jurisdiction would be where (a) the Defendant, or where there are more than one, any of the Defendants, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Defendants, at the time of making the application, actually and voluntarily reside or carry on business or personally work for gain; or (b) the cause of action, wholly or in part, arises. 36. We have come to this conclusion because Section 17(7) of the SARFAESI Act categorically stipulates that the Securitization Application filed under Section 17(1) thereof, shall, save as otherwise provided in the Act, be disposed of by the DRT, as far as may be, in accordance with the provisions of the RDDB Act and the Rules made thereunder. In other words, the Securitization Application filed under Section 17 of the SARFAESI Act is to be disposed of by the DRT, in accordance with the provisions of the RDDB Act, insofar as they are applicable. Section 19(1) of the RDDB Act categorically circumscribes the jurisdiction of the DRT to entertain an Original Application filed by a Bank/Financial Institution for recovery of its dues. It stipulates that where a Bank or Financial Institution has to recover any debt from any person, it may make an application to the DRT within the local limits of whose jurisdiction (a) the defendant, or where there are more than one, any of the Defendants, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the CPC. 39. Section 16 of the CPC, on the other hand, stipulates that subject to the pecuniary or other limitations prescribed by any law, "suits" of the nature prescribed in clauses (a) to (f) thereof shall be instituted in the court within the local limits of whose jurisdiction the property is situate. Since we are of the view that the Securitization Application can never be termed as a "suit" as understood in Section 16 of the CPC, the provisions thereof would be inapplicable to a Securitization Application filed under Section 17 of the SARFAESI Act. It is pertinent to note that whilst enacting the SARFAESI Act, when the Legislature wanted the jurisdiction of a particular authority to be decided on the basis of the situs of the property, it is specifically did so. This would be clear from the provisions of section 14 of the SARFAESI Act which categorically stipulates that where the possession of any secured asset is required to be taken by the secured creditor, or if any secured asset is required to be sold or transferred by the secured creditor under the provisions of the SARFAESI Act, the secured creditor may, for the purpose of taking possession or control of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. Another reason for coming to the conclusion that we have is that prior to the enactments of the RDDB Act and SARFAESI Act, Banks and Financial Institutions had to approach the regular civil court for recovery of their dues. The Government found that the then existing legal framework was not conducive for speedy recovery of these public monies which were locked in litigation for years on end. To ensure that the dues of Banks and Financial Institutions are recovered in an expeditious manner, the Legislature first enacted the RDDB Act in 1993 and thereafter the SARFAESI Act in 2002. It is for this very reason that the RDDB Act specifically stipulates (Section 22 thereof) that the DRT and DRAT shall not be bound by the procedure laid down by the CPC but shall be guided by the principles of natural justice, and subject to the other provisions of the Act and Rules, the DRT and DRAT shall have powers to regulate their own procedure including the places at which they shall have their sittings. This provision clearly spells out the intention of the Legislature to give powers to the DRT and DRAT far beyond those that are granted to the civil court under the CPC. This is to ensure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured creditor would then be made to run from pillar to post to defend two separate Securitization Applications in two different places thereby further delaying the recovery of its dues. 44. Looking to all these factors, we are clearly of the view that the DRT whilst entertaining a Securitization Application under Section 17 of the SARFAESI Act would have to follow the principles enshrined in Section 19(1) of the RDDB Act to determine whether it has jurisdiction to try and decide the Securitization Application filed before it. The provisions of Section 16 of the CPC would be wholly inapplicable. 45. Having held so, we must now deal with the decision of the Full Bench of the Delhi High Court in the case of Amish Jain. 2013 (1) D.R.T.C. 70 (Delhi) We are mindful of the fact that the Full Bench of the Delhi High Court has taken the view that a Securitization Application can be filed only in the DRT within whose jurisdiction the secured property is situated. The reasoning of the Delhi High Court can be found in paragraphs 11,12,13,15,16,17, 21, 22 & 23 thereof which read as under:- "11. We are however of the opinion that the Division Bench fell in error in assuming the debt/money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' within the meaning of Section 2(g) of the DRT Act. It was further held that the modes of recovery prescribed in the DRT Act are inclusive of the rights of the Bank as a mortgagee and the rights under Order 34, CPC of the mortgagor, have been taken away by the DRT Act. This Court explained that the DRT Act had made the recovery of debt as distinct from enforcement of mortgage, a cause of action and for this reason the situs of mortgaged property, relevant under Section 16 of the CPC, had become irrelevant. We respectfully concur. Though this judgment of a Single Judge of this Court was cited before the Division Bench in Indira Devi but was held to be not applicable. The Division Bench did not notice that this Court in Samneel Engineering Co. has held, the DRT Act to be not in departure from Section 16 of the CPC, and the situs of the mortgaged property being irrelevant to the proceedings under Section 19(1) of the DRT Act which are for recovery of debt. We find the Debt Recovery Appellate Tribunal (DRAT) also in Bank of Baroda v. Teg's Musrado Ltd., (2006) 129 Comp Cas 275 (NULL) to have held that the relief sought under Section 19(1) of the Act is for a money decree and even if c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession or management is to be preceded by (a) the borrower under a liability under a secured agreement making any default in repayment of the secured debt or any installment thereof; (b) the borrower's account in respect of such debt being classified as non-performing asset; (c) the Bank/Financial Institution requiring the borrower by notice in writing to discharge in full his liabilities within sixty days and giving details of the amount payable and the secured asset intended to be enforced in the event of non-payment; d) consideration of representation if any made by the borrower thereagainst and communication to the borrower of the reasons for non-acceptance of such representation. Though, it could well be argued that the DRT within whose jurisdiction Bank/Financial Institution to whom the borrower is indebted is situated, would also have jurisdiction to adjudicate whether the action under Section 13(4) of taking over possession/management is in accordance with the aforesaid procedure but the explanation to Section 17(1) of the SARFAESI Act clarifies that the communication of the reasons to the borrower for not accepting the representation or the likely action of the Bank/Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed to the extent possible but if a deviation becomes necessary to carry out the purposes of the Act in which reference to another legislation is made, it would be permissible. Similarly, in Ujagar Prints v.Union of India, (1989) 3 SCC 488 a five Judge Bench of the Supreme Court held that the Legislature sometimes takes a shortcut and tries to reduce the length of a statute by omitting elaborate provisions where such provisions have already been enacted earlier and can be adopted for the purpose in hand. The expression 'so far as may be' was held to be meaning 'to the extent necessary and practical'. 21. What we however find is that the DRT Act is not containing any provision for territorial jurisdiction of an appeal as under Section 17(1) of the SARFAESI Act, even if it were to be construed not as an appeal and as an original application. The jurisdictional provision under Section 19(1) of the DRT Act is only for applications by the Bank/Financial Institution for recovery of debt from any person. An application by a Bank/Financial Institution for recovery of debt can by no stretch of imagination be equated with an appeal under Section 17(1) of the SARFAESI Act. We are therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view expressed therein. Firstly, we are unable to agree with the finding of the Delhi High Court that the proceedings referred to in section 19(1) of the RDDB Act are merely proceedings for recovery of debt and not for enforcement of mortgage. According to us, this finding runs counter to the very definition of the word "debt" appearing in section 2(g) of the RDDB Act to inter alia mean any liability (inclusive of interest) which is claimed as due from any person by a Bank or a Financial Institution during the course of any business activity undertaken by it under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the Application. We are therefore clearly of the view that proceedings under section 19(1) of the RDDB Act are not merely proceedings for recovery of debt. In proceedings under section 19(1) of the RDDB Act, the Bank / Financial Institution can certainly seek reliefs for enforcement of its mortgage. This interpretation would also be in consonance ..... 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